Alex Dalmady, the MSM, and Stanford

Alex Dalmady, the analyst who broke the Stanford story, has a blog now, and he’s not afraid to use it: his latest blog entry has appeared with the headline "The WALL STREET JOURNAL can kiss my ass!": (Update: Dalmady’s entire blog has now disappeared; he emails to say that he thinks he was hacked. I have a copy of it; if he lets me, I’ll republish it here. Update 2: The blog’s now back up but not the WSJ entry.)

They were among the last to call…

What did I expect from THE JOURNAL? I really expected the cavalry. Validation. They have analysts and auditors and people who can pick this up quickly…

Their first article was a total lame-out… I called them out on it. Lame! They called… no, no, no we’re on it. We want to interview you personally, too…

Then they don’t want to see me (I was trying to schedule my day). Then they do…

But here’s the catch: no one can know, no one can tell, I can’t say anything about what we talk about…to anyone…

This is EXACTLY why guys like Markopolos and myself don’t go to guys like you with tips. Lesson learned.

This, ladies and gentlemen, is how the journalistic sausage is made. It’s a hyper-competitive world, which is good in some respects, but very bad in others — the Stanford case being a prime example. When Dalmady broke the story, Matt Goldstein of Business Week and Alison Fitzgerald of Bloomberg were already quite far advanced in their own investigations of Stanford. As a result, the WSJ and the NYT were reluctant to report the story, and were pretty late to the game. The FT had it even worse, being hobbled by lawyers worrying about the UK’s draconian libel laws.

Since then, the Stanford story really hasn’t gained traction in the way that one might have expected. Zachary Roth of TPMMucraker, for instance, first found the story in the NYT, and put up a blog entry on Friday morning. Later that day, he realised the story was a bit older than that, and put out an update giving BusinessWeek credit for "breaking" the story on Wednesday. But even as he continues to follow the story today, there’s no indication that, I, for one, was reporting it on Tuesday morning — and there’s certainly no mention of Dalmady. Isn’t the whole point of the blogosphere that it’s meant to be able to glom onto stories without the intermediation of the MSM?

More generally, essentially no media source has had the guts to do what Dalmady expected of them — which is to take a critical look at Stanford’s financials, as he did, and try to work out whether they indicate the presence of fraud. Instead, most of the Stanford reporting has been about regulatory investigations — including the SEC investigation which has been dragging on for at least three years now. There are a few subplots involving the incentives offered to people selling CDs, and of course in England there’s the whole cricket angle as well, but in general the media has been extremely wary of coming out and doing any accusing themselves: they prefer to let the accusations lie hidden, implicit, behind "straight reporting" of SEC, Finra, and (according to the WSJ) FBI investigations.

Part of the reason for this is that the stakes are extremely high. As a blogger, I have relatively little equity in being right, and in fact I’m the first to admit that I’m regularly wrong on matters big and small. I would never expect anybody to take a blog entry of mine as the gospel truth: I call things as they seem at the time, and as new information comes to light I’ll change my opinion accordingly. But a newspaper can’t do that: it can’t, without covering its face in egg, say something like "well, Stanford looked like it was a fraud, but now, in the light of new information, we can see that it wasn’t fraudulent after all". So editors are ultracautious about any such story.

I do expect that eventually one major media outlet — I have no idea which — will manage to get enough ducks in a row that it will feel able to come out and make some serious accusations directly against Stanford, rather than just reporting on the investigations of others. But to date, most of the MSM hasn’t even reported accurately on what Dalmady is saying. Here’s the WSJ, for instance:

“The first thing that grabs your eye is the business model," says Alex Dalmady, an analyst who unveiled concerns about Stanford International Bank in the magazine VenEconomy Monthly but isn’t involved in the investigation. "Taking deposits and playing the stock market — this is way too risky”.

Not only does this imply that Dalmady merely "unveiled" previously-existing "concerns", as opposed to directly investigating the bank’s financials and raising them himself. It also waters down what those concerns are: Dalmady thinks that Stanford’s running a Ponzi scheme, not just that its investments are "risky". And Reuters was even more circumspect, to the point at which the true meaning, if it was there at all, disappeared entirely:

After reviewing Stanford’s financial statements, Dalmady concluded that it used borrowed money, or leverage, to pump up investment returns.

On his blog at BusinessWeek, Goldstein hints at some of what’s been going on:

Too often in the news business, there’s a tendency not to give credit to others covering a story well. I guess it’s just the competitive nature of the business that can make that a hard thing to do. And it’s especially difficult when chasing a fast, unfolding story such as the one involving the investigation of Stanford Financial.

Goldstein then praises a few of the other reporters and bloggers who have been following this story — although he neglects to link to any of them. And although it seems that the WSJ was willing to report in some detail on Dalmady’s story, it was only willing to do so if it could somehow get the "exclusive".

But that’s not how a story like this one works — especially not when you come to it late. It was the blogs who brought Dalmady’s analysis to the attention of the MSM: the story was first published by Veneconomia magazine in Venezuela; was then picked up by Venepiramides (in Spanish) on Friday, February 6; then by The Devil’s Excrement the following Monday, Inca Kola on Tuesday, and finally me later that morning. To read all the coverage, however, you’d think that no news had been broken before the BusinessWeek story appeared on Wednesday, February 11.

It’s understandable, then, where Dalmady’s animosity towards the WSJ is coming from. First the WSJ, the rest of the MSM, and even parts of the blogosphere basically pretend that the blogs never had this story first — and then the WSJ asks the very same blogs to bend over backwards to cooperate with them. This is not a tactic with a high chance of success.